Consumer debt accelerates in December, fueled by mortgages

Consumer debt accelerated in December, driven by substantial growth in first mortgage and home equity lines of credit balances, a new industry report showed.

Total consumer debt in the United States reached $18.2 trillion by the end of last year, with $12.8 trillion attributed to first mortgages, according to Equifax's fourth quarter consumer credit trends market pulse. Total debt climbed 3.7% year over year in December, while first mortgage balances rose 4.3%.

Every type of credit saw debt increase annually in each of the last three months of the year, except for student loans, which decreased 0.2%, 0.3% and 1.4%, respectively. Home equity lines of credit balances grew at least 12% in each month, the most of any credit type.

"Historically, consumers have prioritized mortgage and auto obligations over other forms of debt," said Maria Urtubey, market pulse advisor at Equifax, in a press release Wednesday. "However, renewed enforcement on student loans, persistent inflation and high borrowing costs may begin to reshape payment hierarchies and introduce stress into credit categories that have been relatively insulated in the past."

By lender type, banks saw a 6.2% drop in mortgage debt year over year, while mortgage companies and credit unions experienced increases of 12.6% and 3.6%, respectively.

The subprime debt share of all first mortgages rose 12.4% to 9.4% in December, but subprime credit card utilization remained flat at 75.6% quarter to quarter, despite inclining financial pressure from higher prices and interest rates, the release said.

"Topline improvements can mask financial stress in certain groups," Urtubey said. "While higher-income consumers continue to benefit from asset inflation and expanded credit availability, many others remain under pressure, and the broader economic picture still shows uneven financial health. This divergence reinforces the K-shaped economic divide observed in prior quarters and underscores the need to evaluate multiple factors when gauging the financial health of American consumers."

Delinquency rates have either decreased or leveled off for every type of credit but mortgages, as 0.88% of accounts were 90 or more days late on their mortgage payment, a 28.8% rise from last December, Equifax found.

The Federal Reserve Bank of New York reported a similar trend earlier this month, noticing sharper increases in areas with rising unemployment rates and falling home prices.

"It is kind of surprising given the underwriting over the last [few] years," New York Fed researchers said. "Mortgages are all associated with very high credit scores and high income, but we are seeing ... rising delinquencies amongst lower income groups, so again, evidence of a K-shaped economy."

Seasonal patterns are expected to help short-term credit performance. Delinquencies typically ease as tax refunds arrive, the release said.